American economy – Macleans.cahttp://www.macleans.ca
Canada's national weekly current affairs magazineFri, 09 Dec 2016 15:21:33 +0000en-UShourly1https://wordpress.org/?v=4.4.2Why America’s economy has taken flighthttp://www.macleans.ca/economy/why-americas-economy-has-taken-flight/
http://www.macleans.ca/economy/why-americas-economy-has-taken-flight/#commentsThu, 06 Nov 2014 16:38:30 +0000http://www.macleans.ca/?p=635231While Washington played dangerous games with the budget, the economy was quietly on the mend

For many people the name Nouriel Roubini probably won’t ring any bells. Chances are, though, his nickname, Dr. Doom, will. Sure, there have been other economic prognosticators over the years who’ve been given the comic book supervillain moniker when they made gloomy predictions that came true. But Roubini stands out for his 2006 warning that the U.S. housing bubble was about to burst and that the fallout from subprime mortgages would ruin the global economy. So it wasn’t a surprise that in the wake of the financial crisis Roubini became the go-to voice of angst, always ready with a grim forecast for America’s economy—from the risk the U.S. was headed for default on its debt, to the likelihood of America tumbling back into a Great Depression-style double dip. Which made it all the more remarkable when Roubini observed last week that the global economy is like a jetliner with only one functioning engine keeping it in the air, and that that engine is America (with a little help from the U.K., he added).

Let’s pause a moment for that to sink in. It was only a couple of years ago that doomers, including Roubini, were feasting on the imagined carcass of American capitalism, thanks to an engineered cycle of government debt crises that repeatedly brought the economy to the brink.

While Washington played its dangerous games, however, the country was on the mend. In the third quarter, the U.S. GDP grew at an annual rate of 3.5 per cent, having been stuck in the two per cent range for several years. America’s industrial renaissance continues apace—U.S. factory activity has strengthened throughout the year. And the job market has come back, if not roaring, then briskly trotting. The number of U.S. job openings has climbed to a level not seen in 13 years, and there are signs that this is finally translating into rising wages for workers.

The U.S. has accomplished this against the backdrop of intense belt-tightening at the government and household levels. At no other time in the last half-century has America’s fiscal position improved so quickly. The U.S. federal deficit came in at US$484 billion in the 12 months ending Sept. 30—equal to 2.8 per cent of GDP—down from its peak of US$1.3 trillion in 2009, when the deficit was equal to more than 10 per cent of GDP. And at the consumer level, despite almost non-existent wage gains, households have gone to great lengths to repair their personal balance sheets, bringing their debt levels back in line with historical norms when measured against disposable income. Sure, the U.S. Federal Reserve continues to prop up the economy with ultra-low interest rates, but it has ended its quantitative easing program, which saw it buy up US$4.5 trillion in Treasuries and mortgage bonds as a way to inject liquidity into the economy, and higher interest rates are on their way.

The contrast between America and the rest of the world couldn’t be more stark. Growth in China is slumping, Europe is a mess, Japan’s economy has stalled and developing nations everywhere have hit the skids. Even Canada’s economy, which has traditionally done well when America does well, seems to be sliding in the opposite direction. As a result, last month, the International Monetary Fund slashed its outlook for global growth, warning that the world is suffering from an “uneven global recovery.”

The IMF has been using that sort of language for several years now, though in the early going the U.S. was the laggard. But here’s the thing: The uniform global growth that we saw in the wonderful and bountiful mid-2000s, when economies across the world were all expanding—or as Roubini might say, when all the engines on the jet plane were firing at once—was a fluke rather than the norm. Prior to that there had always been winners and losers; some countries did well, while others struggled.

We know now that easy access to cheap money spurred everyone to gorge on debt, fuelling growth to levels that could never have been achieved otherwise and could never hope to be sustained. (Greece, Spain, China: we’re looking at you). The even-keel global economy was a myth built on leverage.

For us here in Canada, there’s arguably more bad news than good in all this. As our largest export customer—America—recovers, we will, of course, benefit. But at the provincial and household levels, Canada has barely begun the necessary deleveraging process that has been under way in America for five years. Unfortunately, the drag from that threatens to keep Canada’s economy grounded, even as America soars.

]]>http://www.macleans.ca/economy/why-americas-economy-has-taken-flight/feed/5U.S. economy third-quarter growth better than initial estimatehttp://www.macleans.ca/general/u-s-economy-third-quarter-growth-better-than-initial-estimate/
http://www.macleans.ca/general/u-s-economy-third-quarter-growth-better-than-initial-estimate/#respondThu, 29 Nov 2012 15:14:26 +0000http://www2.macleans.ca/?p=321265WASHINGTON – The U.S. economy grew at a 2.7 per cent annual rate from July through September, much faster than first thought. The strength is expected to fade in the…

]]>WASHINGTON – The U.S. economy grew at a 2.7 per cent annual rate from July through September, much faster than first thought. The strength is expected to fade in the final months of the year because of uncertainty about looming tax increases and government spending cuts.

The Commerce Department said Thursday that growth in the third quarter was significantly better than the 2 per cent rate estimated a month ago. And it was more than twice the 1.3 per cent rate reported for the April-June quarter.

The main reason for the upward revision to the gross domestic product was businesses restocked at a faster pace than previously estimated. That offset weaker consumer spending growth.

GDP measures the nation’s total output of goods and services — from restaurant meals and haircuts to airplanes, appliances and highways.

Most economists say economic growth is slowing to below 2 per cent in the current October-December quarter. That’s generally considered too weak to rapidly lower the unemployment rate.

Paul Ashworth, chief U.S. economist at Capital Economics, said companies are likely restocking more slowly now. Businesses typically cut back on restocking when they think consumers will spend less. Consumer spending drives roughly 70 per cent of economic activity.

Economists cite two reasons for the anticipated weakness in consumer and business spending.

Superstorm Sandy halted business activity along the East Coast in late October and November. And spending may weaken in the final weeks of the year, if lawmakers and Obama fail to reach a deal to avoid the “fiscal cliff.” That’s the name for sharp tax increases and spending cuts that would occur in January without a deal.

Companies are “likely thinning inventories just in case Congress fails to do its job, which is always a possibility,” said Joel Naroff, chief economist at Naroff Economic Advisors.

A separate report Thursday showed the negative impact of Superstorm Sandy is starting to fade. The number of Americans seeking unemployment benefits fell 23,000 to a seasonally adjusted 393,000 last week, the Labor Department said. It was the second straight drop after Superstorm Sandy had driven applications to 451,000 three weeks ago.

Still, consumers and businesses appeared to be more cautious over the summer, according to the GDP report.

Consumer spending grew at a weaker 1.4 per cent rate in the third quarter, down from the 2 per cent rate estimated a month ago and nearly in line with the 1.5 per cent rate in the second quarter.

Businesses spending on equipment and software fell at an annual rate of 2.7 per cent in the third quarter, the first decline since the depths of the recession in April-June 2009.

The report showed continued strength in homebuilding, which rose at an annual rate of 14.2 per cent. And government spending expanded at an annual rate 3.5 per cent, marking its first positive contribution to overall economic growth in two years. The increase was driven by a big jump in defence spending.

While economists predict slower growth in the final months of the year, several reports suggest economic activity picked up in October and early November. And if Congress and the White House reach agreement and avoid the fiscal cliff, economic growth could accelerate next year, many economists say.

A Federal Reserve survey released Tuesday showed improved consumer spending and steady home sales helped lift growth from October through early November in most parts of the United States. The one exception was the Northeast, where the storm led to widespread disruptions.

The Labor Department said employers added 171,000 jobs last month and hiring in September and August was stronger than previously thought.

Rising home values, more hiring and lower gas prices pushed consumer confidence in November to the highest level in nearly five years, according to the Conference Board.

A better mood among consumers appears to have encouraged businesses to invest more in October after pulling back over the summer.

There are already signs that consumer optimism is leading to more spending. A record number of Americans visited stores and shopping websites over the four-day Thanksgiving weekend, according to a survey by the National Retail Federation.